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Driver with great credit pay a lot less

It's no secret that car insurers look at your credit score to gauge how likely you are to make a claim, or that people with good scores pay less.

But how much less?

Over a lifetime, you could save enough to buy a whole new car.

A CarInsurance.com study drawn from 42,809 online auto insurance quotes shows that drivers with credit scores over 750 save an average of $783 a year compared with a typical driver in the same age bracket with merely average scores. Someone who maintained a top-notch score from the time he or she turned 25 until retirement would save $22,815 on premiums.

It doesn't matter whether you believe that your credit score reflects how likely you are to make a claim. Insurers believe it, and most of them have made it an integral part of their pricing models.

Credit in auto insurance prices

Credit is only one of countless possible rating factors when you buy auto insurance. But the correlation is quite clear: Good credit, and the lack of "risk" it implies, is very appealing to insurers.

Credit scores above 750 represent the pinnacle of financial responsibility, and roughly 40 percent of consumers maintain scores in that range. The average FICO score is about 680.

Young adults between ages 25 and 34 with a clean driving record and full coverage (liability, comprehensive and collision) pay an average of $1,938 a year, according to CarInsurance.com data. Those with a credit score over 750 pay an average of $1,155, a savings of 40 percent.

"That's a bigger difference than I would have expected," says Liz Weston, a credit expert and columnist for MSN Money. "But we don't know as much about the way insurance scores work."

Fair or not, credit matters

The link between credit history and risk is one auto insurance companies defend vigorously. Your driving record -- known as a motor vehicle record (MVR) -- is notoriously incomplete, says Alex Hageli, director of personal lines policy at the Property Casualty Insurers Association of America. "There's no question a credit report is more complete than an MVR," Hageli says.

Tickets are often bargained down to a non-reportable fine or a deferral rather than a conviction. Accidents can be settled outside the view of police and insurance companies. And courts can be spotty about sharing conviction data. "Courts are not exactly centers of high-tech expertise," Hageli notes.

Credit reports, on the other hand, are governed by market forces. There are three competitors in the market, each providing data that ultimately becomes part of ratings calculations.

California, Hawaii and Massachusetts forbid use of credit scores in auto insurance rate calculations. Similar bills appear in other state legislatures almost yearly but fail, mostly because the correlation between credit history and insurance claims has been independently and repeatedly documented.

"It's an uphill battle to say [use of credit history] is unfair," says Weston. "But it is another reason why you need to know how credit scores work."

Secret credit scores at work

Insurers use a special scoring model that uses the same data that other credit scores do, weighted to emphasize risk rather than creditworthiness. (Do you run credit cards right up to their limit? Danger! Danger! Bankruptcy? Do not pass go.) Medical debt is typically excluded.

Insurers say that use of credit history in setting car insurance rates either benefits or simply doesn't affect most drivers; CarInsurance.com's data –- using insurance risk scores that range from 300 to 850 -- seem to back that contention up. Once credit scores reach 650, most drivers typically pay less than average in their peer group. Drivers with bad credit, though fewer in number, weigh down their end of the scale with much fatter bills.

It takes about the same amount of time to clean up a credit score that it does to clean up a driving record. "Nothing is permanent," Weston says. "Your FICO score can come back from a bankruptcy or foreclosure in three to seven years."

The spread between the haves and have-nots is probably far greater in reality, especially those with spotty driving records. CarInsurance.com, for clarity's sake, limited its data set to drivers with no accidents or tickets.

The chart below shows the average lowest premium offered to drivers in each age bracket, then breaks that bracket down by credit score range.